Tokyo prices hit fastest pace since 1992 barring tax hikes

THE cost of living in Tokyo rose at a quicker-than-expected pace in August to reach the fastest clip since 1992 excluding tax-hike years and add to the communication challenges for the central bank.

Consumer prices excluding fresh food rose 2.6 per cent in the capital this month, according to the ministry of internal affairs Friday (Aug 26). The gain beat economists’ forecast of a 2.5 per cent increase largely based on an expected boost from the fading impact of cheaper cell phone fees last year.

The acceleration in the leading indicator of nationwide inflation is still unlikely to nudge BOJ governor Haruhiko Kuroda towards an adjustment of policy at the central bank’s next meeting in September.

While his overseas counterparts have kept raising rates, Kuroda has insisted on the need for wage growth to achieve stable inflation before any policy change after nearly a decade of stimulus to generate rising prices.

Still, people are seeing their spending power fall as paychecks fail to keep up with inflation, fuelling both frustration among squeezed households and concerns that consumer spending will cool amid Japan’s already-slow recovery from the pandemic.

That leaves Kuroda with an increasingly tough job to convince both members of the public and the government that it makes sense to keep stimulating the economy with rock-bottom interest rates.

He also faces a difficult task to persuade market players that he will not buckle on rates like so many of his peers in the face of inflation.

Japan’s inflation is expected to continue accelerating as an increasing number of businesses have announced they will bump up their prices this fall. Food company price hikes will likely affect 6,305 items in October, according to a Teikoku Databank survey. That compares with a monthly average of 1,151 rising items through July this year.

In October another boost is expected from a further fading of last year’s cheaper cell phone fees. After the government urged telecommunication firms to cut overly high fees, the companies responded in several waves with sharp cuts that put strong downward pressure on the consumer price index.

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Considering all those factors, some economists including those at Citigroup are predicting the nationwide inflation to hit 3 per cent or above in the final quarter of this year.

Even so, that won’t push Kuroda to unwind stimulus before his term ends in April, according to analysts surveyed by Bloomberg this month. They say 3 per cent inflation needs to last for half a year at least to trigger policy action from the BOJ - a scenario that’s way beyond their current price forecasts. BLOOMBERG